Varieties of Regulation

My weekend post on regulation prompted interesting followups from Tim Lee and Mark Kleiman and I basically agree with what they have to say. Meanwhile, it occurs to me that my original post shouldn't have just thrown around the term "regulation" since, obviously, regulations come in different sorts and some regulations I very much favor.

Most notably, pollution -- especially air pollution while the prospect for alternative policies centered around establishing defined property rights seems very dim -- has to be controlled through a regulatory framework. Similarly, I'm a believer in a healthy dose of paternalism, product safety, and public health regulations. But the midcentury effort to transform vast sectors of the economy into tightly regulated monopolies -- the era in which nobody could own a phone, you had to rent one from AT&T -- was ill-advised. Today, on a smaller scale you see a profusion of occupational licensing regulations whose function is simply to arbitrarily make it more difficult for people to start new businesses and compete with incumbents. You also frequently see politicians wanting to find regulatory solutions to what are basically distributional issues. The appeal here is that trying to make businesses behave in such-and-such a way rather than just straightforwardly spending the money necessary to get the thing done allows you to avoid tax increases.

The trouble is that the distorting effect tends to be much larger than what you could have gotten by just spending money. Or you'll have regulations at cross-purposes like in DC where there are all kinds of impediments to building more housing units (maximum lot occupancy rules, maximum height rules, restrictions on your ability to subdivide, etc.) combined with regulations designed to ensure the availability of affordable housing.

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